Letter from the CEO

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Anticipating a new market reality

2019 was a difficult and turbulent year for us. We were faced with both the impact of the unfavourable purchasing position and rapidly changing market circumstances, especially in our home market the Netherlands. It was also a year in which we were asked to contribute our expert opinion to the discussions about the future of the agricultural sector, because of our leading position in the feed industry. These are turbulent times and a new market reality is appearing rapidly, of which we see the challenges but we also see opportunities. And we are convinced that we, thanks to our position and our knowledge of the market, are able to create value for our stakeholders in a sustainable manner.

Price fluctuations of raw materials; inherent part of our business

The first half-year of 2019 was characterised by the unfavourable purchasing position which we did not pass on to our customers. We took this decision to retain our market position. The result, however, was that our first-half 2019 results were severely put under pressure. In the meantime we have further tightened our purchasing procedure in order to minimise the chance of such a risk recurring. We cannot however completely rule out such a situation happening in the future.

The second half of the year fared better. Despite further declining volumes due to challenging market circumstances we realised better results, especially because of the implementation of our efficiency plans, including the closure of five mills. Both in the United Kingdom and in the Netherlands two mills were closed, and later in the year one in Belgium also. We are well on track with the realisation of the earlier announced €10 million cost saving in 2021 (compared to 2018).
The integration of the four companies which we acquired in 2018 has been completed. Our market positions in Belgium and in organic feed have been strengthened due to these acquisitions. We are pleased to see that volumes are increasingly more balanced across the various sectors, as a result of the acquisitions in the poultry sector in Poland (Tasomix) and in the Netherlands (Maatman). For example, our market share in the growing European poultry sector following our acquisition Tasomix in the growth market Poland has clearly improved. Volume development in the United Kingdom however is slower than anticipated which is why an impairment was required.
Thanks to our continuous focus on working capital we have improved our operational cash flow.  

Contributing to a sustainable livestock industry

A political debate about the necessity to reduce nitrogen emissions and the relating measures that needed to be taken, arose in the summer of 2019 in the Netherlands. The Dutch government aims at providing livestock farmers the choice, on a voluntary basis, to stop farming or to make their farming businesses more sustainable. Although the government declared that it was not a goal unto itself to reduce livestock numbers it has become clear that the proposed measures will in due course definitely lead to a small decline in animal numbers in the Netherlands. As ForFarmers we support the Agricultural Collective, the group that discusses the necessary measures with the Ministry of Agriculture, Nature and Food quality, such as adjustments in feed and technical innovations in barns.
In other Northwest European countries we also notice that social concern with respect to the impact of the agricultural sector on the environment is increasing. At the same time, livestock farmers in Northwest Europe in general, and in the Netherlands in particular, have a lower to much lower carbon footprint than their colleagues in other parts of the world. Because of the investments that livestock farmers need to make to meet all the environmental requirements, they are more reluctant to invest in the expansion of their farms. Consequently, the tension and discussion is intensifying with respect to the question how to meet the growing global demand for animal proteins in a sustainable manner. Replacing livestock farming to areas where environmental requirements are less strict, does not, after all, reduce the carbon footprint on a global scale and is therefore not a solution.
With our mission ‘For the Future of Farming’ we make clear that we focus on a future proof, sustainable livestock farming industry. A livestock industry with strong and healthy farming businesses, paying attention to animal health and welfare and to the impact of the sector on nature and environment.  Our answer to the challenge the sector is facing is the Total Feed approach. We help farmers improve their returns on-farm efficiently and responsibly, with our innovative feed concepts, advice and digital tools that help monitor and optimise the farming businesses of the livestock farmer. Knowledge and innovation are crucial in this respect. Partly because of our scale we can train our advisors in internal academies where they can share knowledge, which can subsequently be deployed on-farm. Sustainability is an integral part of our business. We continue to work on improving feed efficiency: more (animal protein) production with less feed. Wherever possible we use residual flows (co-products), from the food industry and not suitable for direct human consumption, in the production of our feeds. In 2019 we have again devoted attention to improving our carbon footprint, both in our own processes and where possible on-farm. Moreover, in the area of health and safety of our employees we were able to achieve a large decline in lost time incidents (LTIs). 

Animal diseases

Animal diseases are having a large impact on the sector for already some time. African swine fever has resulted in an approximate 50% decline of the number of pigs in China, resulting in more export of pig meat to China, a sharp rise in pig prices and, in the meantime, also more export of poultry products to China. African swine fever has also been detected among wild boars in Belgium. Because hygiene protocols have been implemented there is little risk of the disease spreading further. The illness has however recently also surfaced among wild boars other regions including Poland and close to the German border. We are monitoring this closely. Poultry farmers are on the alert because the contagious version of avian flu has been detected among wild birds in Poland. Animal diseases remain a concern for the livestock farming industry, although important steps have been made during past years in determining hygiene protocols and collaborating in the sector to combat spreading of animal diseases.

The importance of a good team

Creating and retaining a good team requires time, money and attention. In 2019 again, we invested in internal training programmes and in creating a culture of teamwork and permanent education. We see this back in committed employees and a growing number of young talents joining ForFarmers. Traditionally more men than women work in our sector. We are all the more proud that we have seen the percentage of female employees within ForFarmers increase for several years already. We are also content that Pieter Wolleswinkel and David Fousert, both from our own organisation, joined the Executive Committee on 1 January 2019 as COO ForFarmers Netherlands and COO Reudink, Pavo and ForFarmers Belgium respectively.
Arnout Traas announced in June 2019 that he would not be eligible for appointment for a new term as CFO during the coming Annual General Meeting of shareholders (AGM). Arnout joined ForFarmers as CFO in 2011. He has played a vital role in further professionalising our organisation and in the many acquisitions we made since 2011. Arnout has also been very valuable during our transition of a cooperative to a stock listed company. On behalf of the entire Executive Committee team I want to take this opportunity to express thanks to Arnout for his exceptionally great contribution to the development of ForFarmers. We are pleased that Roeland Tjebbes joined our Executive Committee on 1 March 2020, as nominated successor. Roeland brings with him significant and relevant experience from the food and the animal feed industry.
The Executive Committee and the Supervisory Board (Board) once again cooperated well in 2019. The Board was also closely involved in determining the strategy for the years 2020-2025. The composition of the Board will also change after the coming AGM. Cees van Rijn will step down (in line with the corporate governance code) after the AGM in 2020 after serving two terms. On behalf of the entire Executive Committee I want to thank Cees for his great commitment and contribution to ForFarmers. Annemieke den Otter has been nominated by the Board as commissioner in the created vacancy. 
We deem it of great importance that our employees can do their work safely. Accordingly we have devoted a lot of attention to safety, including providing training sessions, various investments and actively communicating about safety. This has resulted in substantially fewer incidents in 2019 than in 2018.

Faith in our own strength

2019 was a turbulent year. Our shareholders were, particularly in the first half of 2019, sadly confronted with the consequences of the unfavourable purchasing position. And our employees experienced cost saving projects. For some of our customers it was a year full of uncertainties because of potential limits to their growth due to environmental measures or due to uncertainty of future trade agreements after Brexit. At the same time other customers saw growth pick up because of the enormous demand from China for pig meat and poultry products.
2019 was also the year in which certain trends became more visible and picked up in pace. By implementing strategy Horizon 2020 in the past years we have positioned ourselves stronger in four countries and made a successful start in the growth market Poland as fifth country of operation. We have a solid base with our market positions and our scale with which we can continue to create value for our stakeholders in the current new reality. On 12 May 2020 we will announce our strategy for the years 2020-2025. The commitment and effort of our employees is vital. I want to thank them for this, on behalf of myself and my fellow Executive Committee members.
I would also like to thank our customers, shareholders, suppliers and other stakeholders for putting their trust in us. Together with all the colleagues at ForFarmers we work hard every day to deliver on that trust.

Lochem, 11 March 2020

Yoram Knoop
CEO of ForFarmers N.V.